The Management Myth – Debunking Modern Business Philosophy

I guess most readers of my website have read books by management gurus like Jim Collins and Tom Peters, and many more have probably studied Micheal Porter’s Competitive Strategy. But “the problem” with business theory is that it’s solely built on case studies and have not been tested in a scientific way.

Matthew Stewart’s The Management Myth – Debunking Modern Business Philosophy “debunks” much of the advice and strategies given by external management consultants. The book takes you through the early start of of the management business 100 years ago to the current multi-billion industry it is today. In short, he claims most of the management business is utter nonsense, but yet it has grown into a big business. In addition, Stewart, a philosopher by education and both a consultant and writer by trade, tells his own personal inside-story as a management consultant for almost two decades. I’m pretty sure most will think twice before ordering a consultant after reading this funny (sometimes hilarious) and well written book. I bought the book based on a recommendation by Nassim Nicholas Taleb, and the thinking of Taleb is easily recognizable when Stewart argues that the world is too complex for most strategies, that most strategies can only be explained in hindsight (not forward) and that business studies are generally a waste of time. I bring forward one of the quotes from Taleb’s Antifragile: Accordingly, wisdom you learn from your grandmother should be vastly superior (empirically, hence scientifically) to what you get from a class in business school. My sadness is that we have been moving farther and farther away from grandmothers.

When reading the book, I remembered the insightful article by John Huber where he pointed out the fact that Warren Buffett never outsources his thinking. What a stark contrast to many other CEOs who hire consultants straight from school to be told how to run their business! And let’s not forget Charlie Munger: Tell me your problem, and I will complicate it.

I cut my own summary short because I think the notes provided below summarize the book better than I could possibly do:

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Life is full of surprises. And that’s mostly a good thing. Every surprise is an opportunity for learning.

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It’s all about the money, of course. I was taken aback when my prospective employers offered me a starting salary of 75 000 USD. It seemed like an injudicious amount for an unemployable philosopher. It made me question the financial savvy of the firm’s partners. Yet shortly I had cause to wonder who was fooling whom.

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How can so many who know so little make so much by telling other people how to do the jobs they are paid to know how to do?

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In formal evaluations, as well as in my own estimation, those who did not have MBAs performed better, on average, than those who had MBAs.

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But in fact, telling people how (not) to run big businesses is itself a big business.

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It turns out that management consultants are able to bill themselves out at half a million dollars per year in part because they work for people who think that half a million dollars isn’t a lot of money.

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Management theorists lack depth, I realized, because they have been doing for only a century what philosophers and creative thinkers have been doing for millennia.

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Throughout the years I spent consulting, I never lost the sensation that I was just making it all up as I went along.

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The essence of his new philosophy could be condensed in the following formula: Work smarter, not harder. If you can’t measure it, you can’t manage it (on Taylor’s theories).

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As Karl Popper points out, scientific theories are interesting because they could be wrong. They are falsifiable, and this is why science as a whole is corrigible and progresses.

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…that management understood in a general sense is “the art of getting things done through people”.

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Little wonder, then, that scientific management was enthusiastically received in the Soviet Union (because management was regarded a planning theory about 100 years ago).

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Scientific management isn’t a science; it’s a business. The same may be said of the work of the consultants, the gurus, and even many of the professors who have followed in Taylor’s lucrative footsteps. Their specialty, at the end of the day, is not the management of business, but the business of management.

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…for the simple reason that figuring out how to cut costs is easier than thinking up new ways to generate revenue.

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In this way we were quite representative of a generation of MBAs, who likewise prefer to define management as the thing they are trained to do – namely, analyzing fictitious cases.

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Partners in consulting firms spend much of the time they bill to large clients looking for more ways to bill them.

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Trying to help someone twice your age grapple with a problem that you just read about on the flight over can be quite challenging.

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…..and the scariest words in the English language are, to paraphrase Ronald Reagan, “I’m from headquarters and I’m here to help”.

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Can you think of anything less improbable than taking the world’s most successful firms, leaders in their business, and hiring people just fresh out of school and telling them how to run their business and they are willing to pay millions of dollars for this advice?

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The less strategy you make, the more options you keep.

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In life and in business, the most reliable strategies follow a threefold path. The first and most important step, by far, on the path to glory is to be in the right place at the right time. There is no substitute for being born well. As Woody Allen said – perhaps intuiting a version of the Great Whale Principle – 80% of success in life is just showing up. Machiavelli figured that about half of anyone’s claim to fame comes from what he called Fortuna – and the other half comes from skill in responding to whatever Fortuna throws at you. The second step in any successful strategy, assuming you are so lucky as to find yourself in the right place at the right time, is to bet big. In fact, bet massively (especially if other peoples’s money is involved). The final step, having landed in the right place and put everything on the table, is to work very, very hard to make sure that you aren’t proved to be an idiot.

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As a rule, corporations turn to strategy when they can’t justify their existence in any other way, and they start planning when they don’t really know where they are going. Shareholders who hear the word strategy would be well advised to reach for their wallets and hold on to them very tightly.

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It is more than a coincidence that strategic planning was cradled in the quasi-socialist command economy of the military-industrial complex and it should hardly come as a surprise that the biggest customers for strategic planning outside the trophy corporations of the capitalist world have been the governments of the communist world. Just like Taylorism, strategic planning is at bottom a managerial assault on capitalism.

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Although it obviously makes sense for corporations to engage in some kind of planning activity, various studies and an overwhelming amount of anecdotal evidence now suggest that corporations that engage in formal planning exercises perform no better than those that don’t.

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It also served to vivify the truism that sometimes the worst thing a corporation can do is develop a strategy. In retrospect, I should have paid more attention to it as a classic example of the perils that befall shareholders when management indulges in uninhibited expansionist ambitions.

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Many partners were getting restless. Keeping consultants away from their bonuses, it turns out, is something like hanging a fresh carcass just out of reach of a pack of hyenas.

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Trust is always the most important foundation of management.

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It was a typical product of the consulting profession. Instead of doing what we had to do, we were going to consult ourselves about what to do. Our strategy was to talk “strategy”.

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The most reliable way to make money from a strategy is to sell it to other people.

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As is the custom among consulting firms, BCG has provided no reliable data on which to judge the performance of its invention. (BCG is Boston Consulting Group)

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Consultants will not push an approach to strategy that does not involve significant sales of consulting work.

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The most general and far-reaching consequence of turning the discipline of strategy into a consulting product has been the creation on an artificial need for newness in the business – for fashions for strategy.

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Many people continue to believe that America is a capitalist country, but in fact the laws of the land are written for the benefit of managers, not owners.

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(Micheal) Porter deduces the theory about the three generic strategies, for example, not from a study of firm behavior but from an analysis of the framework he puts forth for categorizing the competitive forces in an industry. Thus, we are asked to believe in the theory because it follows in a purportedly logical way from his assumptions about the generic structure of markets.

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To say that a company has “sustainable competitive advantage” is thus merely to restate the fact that it makes excess profits.

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The problem for Porter is that, though such a definitional axiom may belong to a conceptual framework and may explain excess profits, it does nothing to predict them.

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As anyone with more than a few pages’ worth of familiarity with the genre will know, the strategists’ theories are 100% accurate in hindsight.

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And it is safe to say that the number of failed companies that were once credited by one strategist or another with having a sustainable competitive advantage substantially exceeds the number of successes.

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The most immediate and important implication of Porter’s axiomatic framework is not that companies should seek out competitive advantage but that they should avoid competitive disadvantages.

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Most successful strategies emerge through action; they become perspicuous only in hindsight. And this play-it-by-the-ear kind of strategy making does not result necessarily from a lack of foresight; it often stems from a healthy recognition that the world is generally too complex for our simple plans.

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The analytic bias of the strategy discipline results in part from the fact that the audience the professors seek most to impress is themselves.

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Capitalists, as a rule, don’t crave “sustainable competitive advantage”; they just want a good return on their money over a reasonable period of time. Only managers want to build something that can withstand forever the forces of the market.

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The attempt to turn strategy into a rigorous academic discipline has done considerable violence to the core value in almost all strategic thinking – the fundamental idea that one should always keep an eye on the big picture. Seeing the big picture means seeing not just what is, but what can be.

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We all take more credit than we deserve for our successes and we all blame bad luck too often when we fall.

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The shareholder-value metric, it is now abundantly clear, often induces managers to engage in destructive, short-term oriented actions at the expense of a firm’s long-term goals; it favors excessive risk taking, since managers typically have much to gain on the upside and little to lose on the downside; and it gives managers credit and blame for events over which they have no real influence.

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The time has come to recognize that higher education in management rests on a total fallacy. The idea behind the contemporary business school is that preparing future business managers means training them in a discipline called Business Management. After 100 years of fruitless attempts to produce such a discipline, it should be clear that it does not exist. Preparing managers to manage, in fact, is not different from preparing people to live in a civilized world. Managers do not need to be trained; they need to be educated.

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